Penny stocks can generate higher returns than their blue-chip peers because they are often smaller companies. But, unfortunately, they can also lead to bigger losses as there are fewer checks and balances in places at smaller companies than there are at larger firms.
As such, buying penny stocks might not be suitable for all investors.
However, I’m comfortable with the level of risk involved in buying these companies. There are a couple of businesses I would acquire for my portfolio today as economic reopening plays.
Penny stocks to buy
Capital & Regional (LSE: CAL) is the first company I would buy as a recovery play. The firm, which owns seven shopping centres around the UK, has muddled through the coronavirus crisis. It collected just 59% of rents due for the first quarter of 2021. I think that illustrates the challenge the group now faces.
The good news is, customers are returning. At the end of April, 95% of its retail units were open. Footfall was approximately 80% of 2019 levels in the two weeks following the reopening of non-essential retailers on 12 April.
These figures indicate that the outlook for Capital & Regional’s tenants is improving, and that should bode well for the company’s rent collection. That’s why I would buy the group for my portfolio of penny stocks.
The risks of investing here are clear. Another lockdown could be devastating for the company’s tenants, leading to another drop in rent collection and piling pressure on Capital & Regional’s balance sheet.
Travel resumes
Another company I would buy for my portfolio of penny stocks is Stagecoach Group (LSE: SGC). This business also looks set to benefit from the reopening of the economy.
The public transport provider has seen sales drop to around 50% of 2019 levels, but I’m not worried about what happens to the business in the near term.
Government initiatives, such as the National Bus Strategy for England, and other plans to get more vehicles off the road, suggest demand for public transport will only increase over the next five to 10 years. This could be a splendid tailwind for Stagecoach. This potential has convinced me the company is worth adding to my portfolio of penny stocks.
Of course, the company has some severe headwinds to overcome first. Another coronavirus wave could set back its recovery. What’s more, if office use never returns to 2019 levels, demand for public transport may remain permanently depressed.
Reopening trade
The reopening of pubs and restaurants in England has gone better than many expected. That’s why I would buy hospitality business Marston’s (LSE: MARS) for my portfolio of penny stocks.
The company reopened around 70% of its managed and franchised pubs from 12 April. And the good news is figures show that like-for-like sales at drink-led pubs across the country fell 11% in the last few weeks of April compared to 2019 levels. That’s despite the fact these premises were only allowed to open outdoors.
I think these figures could set the tone for the rest of the year. That’s why I would buy Marston’s in my recovery portfolio. However, I should note that the business is financially stressed and recently had to secure a waiver from its creditors to continue operating.
I think this makes the company one of the riskier penny stocks listed in this article.
